I’ve been editing Asia stories for Forbes since 2006, overseeing writers from Seoul to Mumbai. I work in New York but spent 12 years abroad. I managed to be on hand for the end of apartheid in South Africa and the end of British rule in Hong Kong. At the Financial Mail in Johannesburg I covered economics and edited business stories, and when Nelson Mandela was released, I spent the day in Soweto with the toyi-toying masses. At the Wall Street Journal I edited economics and business stories from around Asia and spent the handover cooped up in the office. I majored in economics, but living overseas was my real education. Compare and contrast: South Africa with its overregulated and overtaxed economy and 25% unemployment, and Hong Kong, with its free-market ethos, a virtual flat tax and booming businesses. But like most journalists I’m a generalist. I started at a newspaper founded by George Washington, the Elizabeth, N.J., Daily Journal, where I covered courts and wrote a weekly political column. Then I moved to business reporting at the Tampa, Fla., Tribune, where I sometimes tangled with George Steinbrenner on the shipping beat. After Hong Kong I got a full immersion in finance coverage at BusinessWeek in New York. Then it was on to Forbes, where I’ve also dabbled in education coverage and whatever else comes up.

Why Are Indian Reservations So Poor? A Look At The Bottom 1%

When customers who live and work on the nearby Crow Indian reservation don’t make their car payments, there’s not much Square One Finance of Billings, Montana can do. Going to state court to repossess the car or garnish wages is not an option. Instead, Square One enters the murky realm of international affairs. The reservation is a separate nation—judgments in American courts can’t be enforced. And the chances of finding the customer and the car on the sprawling rural reservation, or winning in the unpredictable Crow courts, are slim. “We take on such a huge extra risk with someone from the reservation,” says Square One’s Nancy Vermeulen. “If I knew contracts would be enforced, then I could do a lot more business there.”

At a time when there’s a spotlight on America’s richest 1%, a look at the country’s 310 Indian reservations–where many of America’s poorest 1% live–can be more enlightening. To explain the poverty of the reservations, people usually point to alcoholism, corruption or school-dropout rates, not to mention the long distances to jobs and the dusty undeveloped land that doesn’t seem good for growing much. But those are just symptoms. Prosperity is built on property rights, and reservations often have neither. They’re a demonstration of what happens when property rights are weak or non-existent.

Crow Reservation, Montana. (Photo credit/Maureen Sullivan)

The vast majority of land on reservations is held communally. That means residents can’t get clear title to the land where their home sits, one reason for the abundance of mobile homes on reservations. This makes it hard for Native Americans to establish credit and borrow money to improve their homes because they can’t use the land as collateral–and investing in something you don’t own makes little sense, anyway.

This leads to what economists call the tragedy of the commons: If everyone owns the land, no one does. So the result is substandard housing and the barren, rundown look that comes from a lack of investment, overuse and environmental degradation. It’s a look that’s common worldwide, wherever secure property rights are lacking—much of Africa and South America, inner city housing projects and rent-controlled apartment buildings in the U.S., Indian reservations.

More than a third of the Crow reservation’s 2.3 million acres is individually owned, and the contrast with the communal land—often just on the other side of a fence—is stark, as Google satellite maps show. Terry Anderson, executive director of the Property & Environment Research Center in Bozeman, Montana, co-authored a study showing that private land is 30-90% more productive agriculturally than the adjacent trust land. And this isn’t because the land is better: A study of 13 reservations in the West put 49% of the land in the top four quality classes, while only 38% of the land in the surrounding counties was rated that highly. For the Crow reservation, 48% of the land made the top four classes; only 33% of the adjacent land did. “The raw quality of the land is not that much different, it’s the amount of investment in that land that’s different,” he says.

Canada faces the same issues with its 630 bands—as tribes there are called—but thanks to the effort of a dogged reformer, there’s a push to allow reservation land to be privatized. Manny Jules, a former chief of the Kamloops Indian band in British Columbia, is lining up support for the First Nations Property Ownership Act, which would allow bands to opt out of the government ownership of their land and put it under tribal and private ownership. Reserves would become new entities that would have some of the powers of municipalities, provinces and the federal government to provide schools, hospitals and other services, and to enact zoning laws. He expects that the bill will be introduced in Parliament early in 2012 and is confident of approval by the end of the year. What’s forcing the issue is an acute housing crisis on the reserves. Without private property rights, little housing is being built even as the Indian population grows, and the Assembly of First Nations estimates that the reserves need 85,000 new houses immediately; the government is building only 2,200 a year.

“Markets haven’t been allowed to operate in reserve lands,” says Jules. “We’ve been legislated out of the economy. When you don’t have individual property rights, you can’t build, you can’t be bonded, you can’t pass on wealth. A lot of small businesses never get started because people can’t leverage property [to raise funds]. This act would free our entrepreneurial spirit, but it’s going to take a freeing of our imagination. We have to become part of the national and global economies.”

But even if Jules succeeds, there is no reformer like him in the U.S. to lead the charge here. Any effort at land reform must go through the Bureau of Indian Affairs. But the bureau, originally part of the War Department and one of the federal government’s oldest agencies, isn’t about to pave the way for its own demise by signing off on an effort to privatize reservation land. The bureau faced this situation before: Under the 1887 Dawes Act, land could be allotted to individual Indians, but by 1934 so much land had been privatized that Congress reversed course and communal tribal property was back in favor. “Allotment threatened the bureau so it had an incentive to end the process,” says Dominic Parker, an economics professor at Montana State University. In any event, tribal councils wouldn’t be keen to give up the patronage and power that controlling vast amounts of land gives them. And the $2.5 billion a year that Washington spends on programs for Native Americans is a powerful deterrent to change. “For the bureau and other narrow interests, staying with the convoluted system of land ownership is safer than improving property rights,” he says. The bureau declined to comment.

Plus, there are practical issues. Any Indian who didn’t win clear title to land by 1934 was left with a fractional share of the reservation’s land held in trust. With every generation, each share was divided among more family members and today hundreds of people may have a partial claim to one share of trust land. Often there are no records of where many of these people are. In the Crow reservation, 1 million of the 2.3 million acres are held in trust for such individuals. The Dawes Act created another problem: The non-Indian owners of privatized land in a reservation have always faced legal questions over whether they come under the jurisdiction of the tribal authority. The checkerboard pattern of private and trust land in some reservations make it tough for tribes to provide services and do land-use planning.

Anderson puts the choice for tribes in sharp terms. “If you don’t want private ownership, and want to stay under trusteeship, then I say, ‘fine.’ But you’re going to stay underdeveloped; you’re not going to get rich.”

The problems of the reservations go well beyond residents not having the right incentives to upgrade their surroundings. With some exceptions, even casinos haven’t much benefited the several dozen reservations that have built them. Companies and investors are often reluctant to do business on reservations—everything from signing up fast food franchisees to lending to casino projects—because getting contracts enforced under tribal law can be iffy. Indian nations can be small and issues don’t come up that often, so commercial codes aren’t well-developed and precedents are lacking. And Indian defendants have a home court advantage. “We’re a long way from having a reliable business climate,” says Bill Yellowtail, a former Crow official and a former Montana state senator. “Businesses coming to the reservation ask, ‘What am I getting into?’ The tribal courts are not reliable dispute forums.”

Many reservations are rich in natural resources, but there’s no big rush to develop them, given the tangled issue of property rights and the risk of making a big investment without a secure legal footing. “We have 9 billion tons of high-quality coal sitting under the reservation, going largely untapped,” says Yellowtail. “Natural gas, too. Potential development galore, but that potential is never realized.” Indeed a $7 billion coal-to-liquids plan fell apart in April, though it was revived in a scaled-down version in July. Anderson adds that with any investment, “the tribe could change the deal after the fact because it’s sovereign.”

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Let me introduce to you an entirely new concept sort of like the idea of landing on the moon. Let America grant us (Tribal people) economic sovreignty completely with collecting our own taxes, using American currency. Of course, we maintain an “unarmed” relationship with the USA. Tribal states will incorporate American judical standards and open borders for a diverse immigrant populace. We of course will continue in the adoption of US constitutional rights and beliefs. I believe tribal people should have the economic rights to reservation borders in compensation for the violent dispossession from original homelands and in respect to those who have died in the past for defending their homes and lives. If this is too much to ask, well I can take “no” for an answer. Our identity, dignity, and resoration of past depredations depends on the American people officially recognizing our economic borders. Is it too much to believe that this type of healing and restoration is possible? I believe this is possible, but I speak only for myself, at present.

Thanks, If the appropriate steps are taken by both tribal members and the American federal government I’m sure the US congress can find something to do with them. The dialogue should be establish and sought for between the money economy of the United States and interested tribal states with either the assistance or without the interference of the BIA. We can also be considerate of the billions of dollars we could potentially save the American economy if we as a tribal people collectively choose to interact with an non-tribal citizen immigrant populace as residence and business affiliates of a recognized “American tribal state.” If the BIA is going to “lord” over our economic freedom wouldn’t that become of interest to the general American public?

This isn’t an easy situation to solve. I am an MBA student and planning to work at a Reservation school; hopefully some students can learn about e commerce and etc. but even start up businesses can be difficult. Where do most get computers from? I suggest projects like One Spirit (Okini) or private donations would help. I have a surprise new computer for a family at Rosebud SD for Christmas, for example. How many are willing to reach out and help? I have been a teacher in China and understand the concept of communal living probably more than most Americans during my two decades in Asia. Most farmers for example, in China’s mainland do not directly own their land and it is administered by local govt. However, they are allowed to vote for who leads them in local elections. A lot of it depends upon one person or two going to a city, earning money and sending it home. We have all heard of programs and nothing like works well in the US. Hence, having good answers is certainly a difficult one. It would take a lot of effort. I believe a man is measured by how much he can contribute, rather than just thinking about “I” and how much I can get for myself. The Lakota silver bank is a good start.

We are all the same…time has passed and people have mixed. I do believe as time goes on… more native people will be mixed. When does the government stop the favoring?let it go…. and speak for a greater purpose. We are all 1 of the people. I could never understand why the government would need to support or help those who won’t help themselves. …they owe it to us …is what I hear ………….Shame…on you for not changing the pattern and struggles native people are having!

wow. where to even begin dissecting the flaws in your comment? let me start by linking your colonial logic back to the original article’s claim that private ownership will cure social ills on reservations. notions of private ownership of land are what created reservations in the first place and what created crushing poverty and class systems used to dehumanize “commoners” back in Europe long before Europeans invaded Turtle Island. all private ownership does is perpetuate an economic system premised on notions of hierarchical superiority and encourage the parasitic socialty that characterizes European culture….it isnt a new idea that “indians” will only survive if they become white….which is what you and the author of the article are advocating for. on the indigenous side, and being promoted just as long, is the notion of european foreigners (anyone not indigenous to tribal homelands is and always will be a foreigner) stepping the hell back and stop molesting indigenous communities and they will be fine. the poverty on reserves now isnt because indigenous people have never tried to adapt or were not innovative; it is because the us govt made it its mission to hamstring indgenous communities economically, politically and socially. you dont survive 40, 000 years without modern amenities if you do not know how to adapt…..the ignorance, oversimplification, racism, ethnocentricity, naivete and offensiveness of your comment and the author’s article are the problems. now why dont YOU go and learn your own history and deal with YOUR attitude before you make comments on issues you clearly know nothing about?

Writing as a European settler who works alongside Native Americans on land tenure issues, I find Mr. Koppisch’s article raises awareness of some of the current challenges in the way of Native Americans from benefiting from their resources, but feel it is an overly simplistic, ahistorical analysis of poverty on reservations today. In fact, it is based on the same ethnocentric premise that was behind the creation of the Dawes Act in the first place. Namely, that all people are individual selfish utility-maximizes and the biggest thing in the way to “progress” for Native Americans is their collective utilization of natural resources. Thus, the problem, from Mr. Koppisch’s perspective, is that there hasn’t been ENOUGH privatization. To fully tease apart your argument you have to examine two central questions. 1. Is your basic premise correct, are Native American’s selfish-utility maximizes and do they share the same notion of “progress” as European settlers? And 2. Considering that western notions of progress were forced upon them through the Reservation system and policies such as the The General Allotment Act (Dawes Act) – was/is the poverty we see today really because there hasn’t been enough privatization. I challenge this notion and argue there might other, more obvious factors?

For some perspective into the first question, we can look at how Native Americans were organized prior to being forced onto ever smaller pieces of land by an invading army of settlers. Were Native American’s victims of their own communal use of natural resources, a self-created tragedy of the commons? While we can always find instances of resource destruction and conflict in the Archaeological record, but the fact remains, Native American’s thrived on this continent for thousands of years prior to the arrival of European settlers. And believe it not, this happened without privatization, individual allotments, and a centralized state to create laws and enforce contracts. Now, it would be equally false to assume that Native American’s, by definition, are communal and anti-capitalist, that’s just not true, in fact, the Lakota and other tribes were renowned for their role in the fur trade, controlling and manipulating markets around the globe. And in fact, there were internal struggles among Native American leaders over what direction to take. Lakota Chief Red Cloud believed that there was no stopping the influx of settlers and so tried to convince his people to assimilate. Crazy Horse, on the other hand, sought to protect the traditional way of life that extended beyond the boundaries of the Reservations. The point here is that the history of Native American’s extends thousands of years prior to the creation of Reservations. Pretty much none of that history included privatization. Rather, they were forced onto Reservations by an invading colonial army and were forced to participate in a western system of land tenure and agricultural production. But, history doesn’t end there. It’s not as if they were forced onto reservations, and then became equal participants in American society.

After the period of European settlement in North America between 1492-1887, Native Americans were left with reservations consisting of only 150 million acres. Recognized through treaties as sovereign nations, these lands were largely unpartitioned and communally managed, a practice considered by the U.S. Government to be a non-productive and irrational use of resources. The Government’s solution was the General Allotment Act (GAA) of 1887, also known as the Dawes Severalty Act. The act partitioned reservation lands into 160 acre parcels for each head of family, 80 acre parcels to orphans, and 40 acres parcels to each child. After all the allotments were issued, the remaining reservation lands in the West was transferred to the Government who then made it available to white settlers free of charge as part of the Homestead Act. This amounted to a loss of over 60,000,000 acres, nearly 2/3rds of all Indian lands. Beyond the significant loss of lands, the GAA also created several challenges for the use and inheritance of the remaining lands that would have profound implications for future generations of Native Americans.

- It broke apart communally managed lands into individually owned parcels, destroying the ability of many communities to be self sufficient on already limited and marginal lands.

- It disrupted traditional residency patterns, forcing people to live on allotments sometimes far from their relatives, eroding traditional kinship practices across many reservations.

- It destroyed communal control of lands, making it easier for private and government interests to gain access to the vast coal, oil, natural gas, agricultural, and grazing resources on Native American Reservations. This was done primarily through forced leases. Leased which, to this day, the government has failed to fully pay. in fact, according to Judge Robertson of the District Court of Columbia, Native American’s were shorted roughly 47 billion dollars in income collected by the government over the last 120 years.

- The GAA never established an adequate system for how lands would be transfered from generation to generation. Since the practice of creating a Last Will and Testament before death was not common and in some cases was outright offensive to the traditional inheritance practices of some Native American cultures, these lands passed from one generation to the next without clear divisions of who owned what. Today, lands have become so fractionated that it is common to have several hundred or even thousands of landowners on one piece land. This has created a severe obstacle today for individuals and families wanting to utilize their lands as they need to get permission from the other land owners on decisions related to the land. With limited resources to deal with this situation, the only option for most families is to lease their undivided fractionated lands out – often times to non-natives.

- Forced Fee Patenting, introduced with the 1906 Burke Act, amended the GAA to give the secretary of the interior the power to issue Indian Allottees determined to be “competent,” fee patents making their lands subject to taxation and sale. In other words, the government privatized indigenous lands. It as widely understood by government officials that lands, privatized under the Burke Act, would soon be liquidated. In 1922 the Government superintendent of the Pine Ride Reservation noted: “Careful observation of the results on the Pine Ridge reservation show that less than five percent of the Indians who receive patents retain their lands.” According to the Indian Land Tenure Foundation, between 1997 and 1934, nearly 27,000,000 acres of land was lost as a result of privatization.

- Indian Allottees determined to be “incompetent, ” under the Burke Act, were not allowed to live on or utilize their allotment, instead it was leased out by the Federal Government to oil, timber, mineral, and grazing interests. In many cases, Allottees did not even receive the income from the leases. This practice was so widespread that a 1915 Department of the Interior, Annual Report of the Pine Ridge Agency, nearly 56% of its residents were deemed “incompetent.” The longterm affect of this practice was how it physically and psychologically alienated Indian Allottees from their lands. For example many families today own land but have never lived on it, used it, or oftentimes, even know where it is located. The various economic, social, and cultural disruptions created by the these acts over the last century is an underlying cause of poverty on many Native American Reservations today, negatively impacting housing construction, economic development, residency patterns, family and community cohesion, ecological health, cultural self-determination, and political sovereignty.

- The unequal land-use patterns seen on reservations today is a direct outcome of discriminatory lending practices, land fractionation and specifically, Federal policies over the last century that have excluded native land owners from the ability to utilize their lands while at the same time opening it up to non-native farmers and ranchers. Discriminatory lending practices, as argued in court cases such as the pending Keepseagle vs. Vilsack, claim that Native Americans have been denied roughly 3 billion in credit.

With the above facts in mind, is it really accurate to say that the poverty on Native American reservations is a result of “not enough privatization” or should we also consider the 120+ years of discrimination and abuse by the United States Government? My point here is not to argue against reforming the land tenure system on reservations. Rather, I believe tribes should have total control over their resources as guaranteed to them by their respective Treaties but also in a contested nature, that goes beyond the legal context of the 1800s but one rooted in UN Declaration of the rights of Indigenous People and their aboriginal claim. But beyond that, they should receive equal protection under the law which means investigating claims to seized lands illegally seized and unpaid lease contracts by the U.S. Government. But also, reparations for the damages caused by the violence and sexual abuse rampant in boarding schools.

I find it ironic how academics and journalists try to come up with new theories to explain poverty on reservations but fail to take into account the obvious. The government owes Native Americans at least 45 Billion dollars yet, in the settlement offered by the Obama administration, they are being compensated for less that .06% of that. And this hardly makes the news! Who else could be treated like this? How is this not a factor? How is the history of broken treaties and land theft not a factor? Until we as a American settlers take off our blinders and recognize how some people in this country have been and continue to this day to be denied their rights, we will never move beyond the racist legacy of this country.